Interview | Wednesday, 28 May 2008

The future of telecommunications

In his first newspaper interview, the freshly-appointed Executive Chairman of the Malta Communications Authority (MCA), Philip Micallef, speaks to Charlot Zahra about the future of the telecommunications industry in Malta as technologies converge and the role of the Authority in this scenario increases in its importance

What are the main challenges facing the Maltese telecommunications industry at present?
The main challenge facing the telecommunications industry in Malta is creating the conditions for investment and competition to the benefit of consumers. Competition is the spur to innovation and quality of service offerings. One has to ensure that on one side Malta has a world class telecommunications infrastructure, consumers get the best possible services and at the same time at the most affordable prices. A market of 407,000 inhabitants has its specific challenges as some business cases for particular investments may make sense for a market of millions of consumers but not for a market of less than half a million.
However, telecommunications is a golden opportunity to turn Malta’s size and compact geography into a comparative advantage. The challenge that lies ahead is to maintain the momentum of the telecommunications industry as it is in a constant state of flux and Malta must stay ahead of the game.
As telecommunication services become cheaper and more affordable and the role of innovation grows, Malta has to be at the forefront. Foremost among these challenges is the need for MCA to identify and pre-empt the new digital divides which will otherwise emerge.

How will the MCA tackle these challenges effectively?
MCA has to continue creating the framework to basically ensure good linkages and relationships between the economy, enterprise, technology and the consumer. It needs to assess the effectiveness of the empowering legislation and identify areas of improvement.
Promoting competition will remain a vital component of effective regulation. Competition ensures the availability of a range of products and services, meaning consumer choice, quality and competitive prices.
The MCA will continue to ensure that rights to access and interconnection will, within the boundaries delineated by regulation, be available to all service providers.
Numbering management and number portability, a lightweight general authorization scheme and effective access to radio spectrum are other elements that contribute towards ensuring that barriers to entry remain low.
Frequency spectrum has become an essential component in the development of infrastructure-based competition and the MCA is examining on how to best develop a market for spectrum by driving forward the process of spectrum liberalisation and facilitating spectrum trading.
Allowing, within acceptable boundaries, the market to decide how spectrum should be used will foster increased competition and innovation.
The MCA will need to assess possible new sources of market power that could emerge through convergence. New sectors, products and services have sprung up; new operators have become established in all major sectors; both traditional and new services are being delivered to consumers over multiple platforms. This combination of new products, operators and delivery channels has combined to fuel the process known as convergence.
Operators around the world are investing a lot of resources and making an effort in trialing and rolling out these new converged services, not only because they believe there is a growing customer demand but because it can also open windows for dynamic new operators to gain technology leadership and acquire customers from the traditional communication providers.
Besides the regulatory work the MCA has to combat the digital divide by taking specific initiatives and involving the local community, market players and educational institutions.
The authority also has to consolidate all the institutional and organisational elements that are required for the achievement of a solid e-commerce environment.
The MCA has to facilitate investment in the telecommunications sector by continuing to create the right environment and attracting to our shores telecommunication companies that may not be interested in the local market but want to carry out their business and/or some of their operations from Malta.

What is your initial assessment of the MCA staff and the Authority’s performance in general as the regulator of the telecoms services in Malta?
MCA has a team of professional, hard working and dedicated people. The role is not an easy one as it has to act in many cases like a referee in a football match and usually the referee has a difficult role to play.
Although the Maltese market is relatively small, staff still have to carry out all the market analysis, consultations and other work which is also carried out in much larger European Union (EU) countries. I am extremely pleased to have found such a great group of people and my thanks go to my predecessor as Chairman, Joseph V. Tabone for this.
The MCA has over the years contributed to the growth of the electronics communications sector which has shown significant progress and we have witnessed considerable change in new voice services, digital broadcasting, broadband wireless access, third generation networks, calling cards, premium numbers, number identification, voice messaging, routing of calls, data transfers, home banking, videoconferencing, mobile TV and many others to come such as mobile services on board aircraft.
The fact that the communications industry in Malta produced just over €263.9 million worth of output, which roughly accounts for three per cent of the total output of the economy should also be a reflection of the Authority’s performance.
The MCA has to build on the good work done in the past and continually dialogue and be in contact with all the operators and service providers and not just when a problem or dispute arises.

Which are those areas where the MCA is being most effective? Which are those areas in which the MCA is being less effective?
The MCA since its setting up has brought this sector a long way forward with legislation and regulations that have fostered competition in fixed line telephony, mobile, broadband and pay TV.
Platform competition has also provided consumers with a choice of delivery mechanism. Level playing fields were attempted in all areas and if one looks back tremendous progress has been achieved. Prices of telecommunication services have decreased substantially and the services themselves have also improved.
Technology is moving at a fast pace and MCA has to always be ahead of the game with regulation clear enough to encourage providers to carry out investments in areas like next generation networks, e-commerce, m-commerce etc. I think the MCA has to ensure that it is always ahead and does not have to catch up.
Areas that need improvement include coordination with other entities and authorities to ensure the consumer gets a one-stop shop service to his enquiries and complaints, among other things.
Also, the Authority has to start ensuring that what is sold to customers by the providers is effectively what the customers get.
Communications with stakeholders is key and here the MCA will step up this line of communication with information sessions, meetings, workshops, seminars, and feedback sessions, among other things.
As the market matures the Authority has to try and regulate in a more lightweight fashion and encourage the providers to work together in settling some inter-company issues which at times are not purely regulatory but simply commercial.

What effective measures are you going to take in order to address these shortcomings?
As we monitor frequency issues we also need to start monitoring broadband issues of whether speeds provided are those being sold to customers. This will involve setting up the proper structures and mechanisms to do so and will kick-start a project to carry this forward.
The Authority needs to be in continual contact and dialogue with the stakeholders as I believe this is key in having a more effective Authority. The MCA has to create the legal framework to ensure foreign investments in telecommunications and media industry is fostered.
MCA as we said previously has to be pro-active in whatever it does and needs to set up a small research team to study new technologies and their relevant application and impact on the local scenario.

You come straight from the industry, having served as Melita Chief Executive Officer (CEO) for the past two years. Do you think this is an advantage or a disadvantage in doing your job?
I personally think it is an advantage to have come from the industry itself as I have experienced the challenges and problems of an operator both in the local and in some EU markets.
I can appreciate more the difficulties operators face and the tough decisions that need to be taken when it comes to entering new markets, making substantial investments as well as satisfying customer requirements and expectations.
It is not unusual for a regulator to come from an operator. I know of the Spanish Regulator CMT where its head came from the local incumbent Telefonica and the CEO of Ofcom in UK came from cable company NTL.

Do you believe that you can do your job as a regulator impartially, given your baggage?
I believe I can do my job impartially and contribute to MCA’s image of acting fairly and transparently. In all my jobs whether it was for Olivetti, SITA, France Telecom, Malta Enterprise or Melita I always acted in the interests of my employer.
I shall now continue acting in the interests of my employer MCA to regulate the sectors of electronic communications, e-commerce, and posts with a view to achieving sustainable competition, enabling customer choice and value for money coincident to the development of an environment that is conducive to investment, and continued social and economic growth.
At the end it is not up to me to judge at this stage but I need to be judged on my results and actions and not on whether I came from a telecommunications operator or the public sector or some other sector.

In its latest report about the Maltese telecoms market, the European Commission highlighted that mobile phone tariffs are “among the highest in the EU”, with penetration at 91 per cent still low when compared to the EU average. Do you agree with the Commission’s position?
The reality is that tariffs are among the highest in the EU and the penetration of 91 per cent although appearing high is among the lowest in Europe. Many EU countries have penetration rates exceeding 110 per cent. The usage of minutes per consumer per month is also low in Malta when compared to other countries.
On the other hand the number of SMS messages in Malta are among the highest in EU and the price ratio (mobile voice to SMS) is the highest in Europe. One also has to consider that investments in a mobile operation in a small country taken on a per customer basis tend to be higher.

How will the MCA effectively address this issue and foster real competition in the mobile phone market after six years of duopoly?
In August 2007 MCA issued a 3G license to a third operator and this means that in the near future Malta will have three mobile operators. This will provide customers with a wider choice and competition will increase.
From past history in broadband or fixed line every time customers had more operators to choose from prices did go down.
Competition will encourage the operators themselves to be more efficient and customer oriented in order to either retain their market share and/or increase it.

Do you believe that there is enough market space for a third mobile operator in Malta?
As stated previously tariffs are still relatively high, usage is low and penetration is below the EU average in mobile telephony. A third operator will increase competition, prices will be more attractive, usage of mobile telephony and other associated services will increase and customers will have more choice and at the end decide themselves whether we shall have a healthier and better mobile market.

In an interview with Business Today on 30 April, former GO Mobile Director of Operations Peter Gauci said: “Now, 3G in Malta requires a larger number of base stations than any 3G setup in most other countries. This is due to a number of factors – such as the large number of hills and thick walls in places like Valletta, to mention a few.” In view of this, do you believe that it is technically possible for a 3G mobile operator to compete effectively in Malta?
I think that a 3G operator can operate very effectively in Malta. It is true that more base stations are needed for 3G networks than GSM networks yet equipment prices are declining and a 3G network offers more potential and opportunities than the conventional GSM networks and hence more services to customers and revenues. Also m-commerce is still in its very infancy and the take-up of m-commerce will encourage more people to use 3G technology.
On the base station equipment, although 3G requires more stations than conventional GSM and thick walls in Malta are very common, the size of these base stations has decreased considerably - meaning that less area is needed to mount such stations and hence entailing less rental costs.
Also the power consumption of such base stations has decreased considerably helping improve the operational costs. Costs of base stations have declined rapidly over the years and analysts predict that prices will continue declining.

In the field of digital terrestrial television (DTTV), does the MCA still intend to issue a new call for applications for the second DTTV operator as it was planned in the 2005 broadcasting policy, once the problem of frequencies is resolved?
In 2006, at the ITU Regional Radiocommunications Conference that specifically addressed the future digital television broadcasting plan for the region, Malta was assigned nine frequencies and its previously coordinated frequencies become subject to re-coordination.
This has led to the current situation where there are no additional frequencies available apart from those reserved for General Interest Objectives.
If additional frequencies are successfully co-ordinated with our neighbouring countries and made available for assignment it is envisaged that these will be assigned competitively as was done in 2005.
The MCA will consult on the most appropriate assignment process based on the number of frequencies available.

Do you believe that there is enough market space for a second DTTV operator in Malta?
The original policy issued in 2005 had established the possibility of having two DTTV operators. This policy is up for review and is envisaged to take into consideration any additional frequencies available, technological advancements and market experience to date.
Having said this it will be up to the market to decide whether there exists enough market potential for an additional DTTV operator.

In its latest report on the Maltese telecoms market, the European Commission also highlighted that at 17 per cent, Malta remained short of the EU average of 20 per cent of broadband subscriptions. Do you agree with this assessment?
When this assessment was made there were still a number of thousands of customers subscribing with a local operator to a 128K “always on service” and this speed is not considered broadband by the Commission.
Since then this operator has automatically upgraded these customers to 2MB and our latest calculations now show a penetration of 20.4 per cent, which has reached the EU average.
If we consider now the Blueskies initiative by Government whereby take-up was 5,900 then the Maltese broadband penetration rate becomes well above average. We have made such corrections and communicated them to the EU.

How will the MCA effectively address the issue of broadband uptake to ensure that prices are really affordable to the consumers?
Broadband uptake will increase as you rightly say if prices are affordable. Prices have in fact decreased substantially if you consider that a 2 MB connection a short while ago was €29.16 and today it costs €13.86, a decrease of more than half. The challenge here is to make it affordable to all and to ensure that the less privileged members of society do not get left behind.
On the regulatory front MCA will ensure that there is a level playing field and competition so that value-for-money prices will be offered to customers. Also the MCA will foster platform competition so that same service can be offered over various platforms (ADSL, cable, 3G, BWA etc) and customers will not only have a choice of operators but also of delivery platform to suit their requirements.
The MCA will also promote initiatives like the Blueskies one to make broadband more affordable, accessible and available to all.
One of the major components of broadband costs is the international bandwidth cost and here the MCA will be supporting the Ministry of Infrastructure, Transport and Telecommunications in all initiatives to make Malta better connected to the outside world in terms of capacity and costs.

Now that the telecommunications technologies are converging, do you think that the MCA and the BA should be merged into a single regulator?
As technology progresses telecommunications, cable TV, broadcasting and computers have become one industry and operators are also bundling services together.
It is not up to me to pass judgement on this. In any case, I firmly believe that whether merged or separate both entities have started and will continue to work closely on a common policy in this area.
Both authorities have already started doing this on matters like new legislation to facilitate foreign media companies setting up in Malta.

Do you believe that the MCA should enforce its original decision to open up access to the cable television network irrespective of the appeal proceedings, as is usual MCA policy?
There is a consultation paper on the subject, which closes on 30 May. The EU Commission has already pronounced itself and issued a “serious doubt” letter on the matter and hence threatened to veto the MCA’s original decision so it is not the appeal proceedings that the MCA has to deal with but the Commission. I am here quoting what the MCA has already stated in the consultation paper issued on 11 April:
“The MCA is unable to prove joint dominance in the parameters of the current market framework and dynamics. Nonetheless this Authority harbours concerns that leaving the market to fend for itself at this stage carries significant risks. It would seem reasonable to assume that a ‘hung’ decision, that is one that cannot definitively state that a market is either competitive or not, should result in the application of the prudence concept and the application of a modicum of remedies, however light. This is unfortunately not permitted under the current EU framework. Moreover, the excessive burden of proof required in the review of possible joint dominance cases, renders any market situation that is not an absolutely clear-cut case virtually impossible to prove. In such circumstances it is even more problematic to apply the prudence concept. Ultimately it is acknowledged that the EU framework has been tailored with the intent of enhancing liberalisation, competition and sector growth. The MCA acknowledges that in many such respects the Framework has been effective.”